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Could US firms be left in the cold?

Vietnam Investment Review | Insight | No. 772 | July 31-August 6, 2006

Could US firms be left in the cold?

US enterprises are chafing at the bit to get into Vietnam, yet many business heads are concerned that if Congress does not establish permanent normal trade relations (PNTR) with their former foe, then firms from other countries will have a trade advantage.

Lien Huong reports.

A local legend tells of a group of men that found themselves entering a fertile garden bountiful in fruit. Hungry after a long walk in search of food, they raced each other to get the ripest fruits to fill their empty stomachs.

The winners were those who owned the sharpest knives which helped them to cut the choicest fruits from the trees. US businesses now seemingly find themselves hard pressed to sharpen their knives to claim the spoils of trade with Vietnam. Hungry, they eye the Permanent Normal Trade Relations (PNTR) status with Vietnam as the sharpening stone for the previously blunted blades. US authorities, by granting PNTR to Vietnam with conditions attached, are hindering their own companies from reaping full trade potential in Vietnam, which is recording the fastest growth in the Southeast Asian region. US firms therefore feel they are being left behind those from other countries in gaining a firm foothold in this burgeoning market.

China, Japan and the EU have proven more light-footed than the US in reaching bilateral agreements in support of Vietnam’s WTO membership bid, agreements made in return for the far greater market access commitments. The ASEAN-China Free Trade Agreement (ACFTA), has scrapped duties on 7,000 types of goods traded between China and ASEAN, including Vietnam. The removal of trade barriers helps boost trade between China and ASEAN nations, with total trade turnover to reach around $1.23 trillion annually. The Republic of Korea is also discussing a free trade agreement with ASEAN and expects to conclude negotiations in 2009. US firms, while asserting that trade between Vietnam and the US has boomed since the two nations signed the Bilateral Trade Agreement (BTA) in 2001, is now convinced that they can only maximise benefits of trade with Vietnam after granting PNTR.

Total trade turnover between Vietnam and the US rose to nearly $9 billion between 2001-2005, a surge from just over $1bn during the previous five-year period. Of which, the US exported $1.7bn worth of goods to Vietnam and imported $7bn worth of Vietnamese goods.

“Everyone underestimated the benefits of the BTA. It was much more beneficial to Vietnam and the US as well, but the benefits were far greater than anyone expected,” Thomas O’Dore, Chairman of the American Chamber of Commerce in Vietnam (Amcham Vietnam), told Vietnam Investment Review.

“However, from the trade standpoint, it benefited Vietnam far more than it benefited the US. We expect things to change significantly when Vietnam joins the WTO and receives PNTR from the US. There will be more US exports, just as there may be still more Vietnamese exports to the US,” O’Dore said.

In late May, the US agreed to support Vietnam in its bid to join the WTO in return for Vietnamese commitment to more open markets for an access to a wider range of US products and services. In return, the US would have to grant Vietnam permanent and unconditional normal trade relations to bring home the benefits of Vietnam’s WTO membership to US farmers, manufacturers and service providers.

PNTR is not a vote for Vietnam’s WTO entry. Failure to grant PNTR will not deny Vietnam’s membership process, but would only deny the US the very market access it spent months negotiating. This would then give competitive advantage in Vietnam to other countries like Japan, China or EU states.

PNTR is neither a special privilege nor a reward, nor is it the most favoured tariff treatment the US provides to trade partners. The 149 members of the WTO enjoy PNTR status with the US, and reciprocate the treatment to US exports.

“The problem is that without PNTR, we [US companies] won’t enjoy the benefits of the market access agreement that Vietnam and the US concluded, nor will we benefit from the multilateral process in those negotiations,” O’Dore said. “That means tariffs will not be reduced to the levels that we have agreed to. It also means that market access for US companies will not be as extensive as for the rest of the world. Other countries will enjoy far greater benefits of this agreement than the US will.”

Many US companies, who source textile products from Vietnam, believe the current quotas US authorities impose on Vietnamese textiles have capped profit margins on such exports, and they would like to see these quotas removed.

“Without PNTR, US companies have to look to other countries to source such products,” O’Dore explained.

US insurance group Liberty Mutual, who filed for a licence more than a year ago, has not yet received approval from the Vietnamese government. “We hope that the conclusion of bilateral negotiations between the US and Vietnam over WTO accession and PNTR will give the Vietnamese government a tenet to grant our licence, so we can sell insurance in the country,” said O’Dore, who is also Liberty Mutual’s chief representative.

Elizabeth Watson from the US National Pork Producers Council also told VIR that pork producers in the US, like every other business or sector of the US economy, would not benefit from Vietnam’s accession to the WTO until the US Congress passes PNTR for Vietnam.

A lot of the US companies would like to import and then distribute products to Vietnam, but are currently not allowed to do so. “Without PNTR, without distribution rights, those companies would be hurt as well,” O’Dore added.

“PNTR is not a trade bill, but right now there is a real negative feeling in Washington about trade bills,” said O’Dore. “PNTR is nothing more than making permanent what the United States does every year for Vietnam. But they have to approve every single year the status conditions and they have been doing every single year for the last five years or more. We always ask them just to make it permanent rather than to vote on it.”

Demand from the US business community for PNTR for Vietnam has increased recently, as they would like to see approval from Congress on the matter as soon before the August recess as possible.

Discussions on PNTR for Vietnam, while supported by the US Senate Finance Committee, which announced on July 25 that it would mark up a bill granting PNTR for Vietnam, are said to have stalled at the House of Representatives, where disputes on other trade bills overshadow the entire PNTR issue.

The heated, and longer-than-expected debates at the House over free trade with Oman, as well as free trade agreement (FTA) with Peru, may well see the effort to extend PNTR to Vietnam shelved until after the November Congressional elections.

Bill Thomas, Chairman of the House Ways and Means Committee, said that the trade agreements must be voted in according to the order in which they were signed. The Peru FTA was signed April 12, before the US-Vietnam agreement on Vietnam’s WTO accession, which was inked May 31. Other business representatives have also said that Vietnam’s PNTR, which is a more popular bill than the Peru FTA, has been held back to leverage support for the Peru vote.

The White House, however, is pushing Congress to approve PNTR for Vietnam before President Bush visits the country in mid-November for the Asia Pacific Economic Cooperation (APEC) leaders’ meeting.

“We are pushing very hard to make sure that Vietnam does get PNTR in time,” O’Dore said, while adding that a significant message that Bush could carry to APEC was that by passing the PNTR, the US was actively engaging not just in Vietnam, but in the Southeast Asian region as a whole. “I think a positive vote by both sides in the House would allow President Bush come here with PNTR. It is significant for everybody.”